JOURNALS OF ROBERT MAAS

Wednesday, November 19, 2014

WITHOUT DEFINITIONS, IT IS POINTLESS TO TALK ABOUT TAX AVOIDANCE OR FAIRNESS IN TAX

BLOG 157

WITHOUT DEFINITIONS,
IT IS POINTLESS TO TALK ABOUT TAX AVOIDANCE OR FAIRNESS IN TAX

There was a
letter in my local paper this week from three schoolchildren who told me, “We
would like to raise the issue of tax avoidance in the UK. At a time of proposed cuts in Harrow, it is
more important than ever to campaign against tax avoidance”. It’s a long time since I was at school, but I
don’t think I ever discussed tax with my confreres; we mostly talked about
football. Accordingly I am pleased that
Nower Hill High School, an Academy which its website tells me is ranked
“outstanding” by Ofsted, seems to be developing its pupils’ interest in
tax. At least I assume it is, and this
is not some teacher using the kids to publicity promote his personal left-wing
views. Nevertheless the teaching seems
to have gone a bit awry. If tax
avoidance magically ceased tomorrow, it would have little or no impact on
Harrow council’s proposed cuts. Harrow
gets its money from two main sources, a government grant and council tax. It is virtually impossible to avoid council
tax – other than by demolishing your house or moving! There is no reason to believe that central
government would increase its grant if it had more money. In any event, most of that grant is earmarked
to meet specific expenses so has no influence on what the council cuts.

I do notice
that Harrow’s band F charge of £1,748.18 is significantly less than that of
neighbouring Brent at £1,961.47. By and
large Brent’s population is less affluent that that of Harrow so there is
significant scope for Harrow Council to increase its council tax. Accordingly its cuts are due to its
(understandable) political reluctance to do that. I also note that Nower Hill is in Pinner, the
poshest part of Harrow and thus the part most able to substitute private
provision for council cuts. I am of
course also conscious that if Harrow Council wished to raise its council tax to
Brent’s level, it is required to hold a local referendum to make sure that the
majority of its populace prefers to pay more rather than make cuts, and
although the parents of Nower Hill may be eager to do that, those in other
parts of the borough may cavil. But my
point is that tax avoidance has nothing whatever to do with whatever cuts
Harrow Council may be proposing to make.

I noted in
the Evening Standard last week that Lord Adonis said, “Mansion tax is perfectly
fair” but he wishes it were called something else. He is quoted as saying that “most people
accepted the need for property tax reform, but there is a problem with the term
“mansion tax” because it makes people think a small group is being singled out
unfairly. In fact, actually, it’s
perfectly reasonable to have a somewhat higher rate of tax on more expensive
properties”. He added, we are told, “I
hope we can get it back to a debate about fair taxation, and not just appearing
to single out those who are at the top”.
I’d like to get back to a debate about fair taxation too. I think that it is ridiculous that all houses
worth over £320,000 (in 1991 money) pay the same rate of council tax. It would be fairer for a £1million house to
attract a higher amount than a £400,000 one.
But the proponents of a mansion tax do not want the money to go to local
authorities; they want it to go to central government.

Even if that
were not the case, a system that says that A whose house was worth £100,000 in
1991 and is now worth £400,000, should pay the same as B whose £100,000 house
in 1991 is now worth £600,000, and should pay more than C whose house was worth
only £80,000 in 1991, but is now worth £500,000, is hardly a fair system. And what is fair about saying that everyone
whose house is worth between £320,000 and £2million, should pay the same but
that those with a house worth over £2million, should pay more? That looks to me like singling out those who
are at the top. Adding an extra charge
on a tiny minority of people to a system that is blatently unfair can itself
have nothing to do with fairness.

A recent
issue of the Sunday Telegraph contained an interview with Hayley Mills. She is quoted as saying how lucky she is that
her dad helped her avoid tax on her earnings as a child actress. What interested me is that she quickly added,
“but only supertax”; she paid the normal tax!
I think she actually meant surtax as supertax ceased in the 1920s and
her tax avoidance related to the 1960s.
Two things interested me.
Firstly, she clearly thought it fair to have to pay income tax but she
appears to think it unfair that, as an exceptionally high earner, she should
have to pay surtax – which was today’s equivalent of the excess over the basic
rate of tax. The second is that, unlike
with Jimmy Carr, the Sunday Telegraph did not regard her as socially unacceptable
for having avoided tax, so presumably they accepted her distinction as a
reasonable one.

This
highlights a problem with tax avoidance.
In general people do not seek to avoid tax that they regard as fair;
they avoid tax because they think that their tax bill is unfair, is
unreasonably high. The second problem is
that no-one has to my knowledge been able to define tax avoidance. It seems to be what has happened when someone
pays less tax than someone else’s concept of fairness thinks they ought to pay.

The
schoolchildren that I referred to earlier have come up with their own
definition of tax avoidance. They say it
is “the use of legal methods to modify an individual’s or a corporation’s
financial situation to lower their tax bill”.
I quite like that, although it is not correct. Taking a day off work modifies my financial
situation as I don’t get paid for that day and that modification lowers my tax
bill because I have less income. Some
people think that Amazon are avoiding UK tax but, as a US company, they never
had any UK financial situation to modify; they have simply arranged their
financial situation to fit in with the rules that the US, UK, Irish, Dutch and
Luxembourg governments have agreed between themselves to decide who should tax
which bit of Amazon’s profits, by organising their business so that the major
part arises in the country that the other countries have agreed can collect the
tax. Nevertheless, it is a good try for
schoolchildren.

The reality
is that both “fairness” in the context of tax and “tax avoidance” are probably
impossible to define as they are very subjective concepts which seem to mean
different things to different people.
However without defining them, it is simplistic to attach such labels to
ideas in order to seek to justify what in many cases – such as the mansion tax
– is unjustifiable. The children of
Nower Hill School have the excuse of youth for their misguided presumptions; I
find it hard to guess what Lord Adonis’ excuse might be.